McHenry questions timing of Prometheum’s special purpose broker-dealer approval

Gary Gensler and FINRA CEO Robert Cook have until August 22 to supply documentation on Prometheum’s approval to the House Financial Services Committee

article-image

DCStockPhotography/Shutterstock modified by Blockworks

share

Patrick McHenry R-N.C., Chair of the House Financial Services Committee, along with other members of Congress, sent letters to Robert Cook, CEO of the Financial Industry Regulatory Authority (FINRA) and US Security and Exchange Commission chair Gary Gensler on Tuesday.

McHenry asked Cook and Gensler to break down how Prometheum was approved as a special purpose broker-dealer. They also questioned the ties that Prometheum reportedly has to the Chinese Communist Party.

Legislators also asked about the timing of the approval, saying that it “raises concerns that it was aimed at demonstrating that legislation is not needed because there is a workable regulatory framework for the custody of digital asset securities.”

Prometheum was granted approval on May 17 of this year, and legislation was released on June 2.  

In the letter to Cook, they asked FINRA to supply a briefing to the House Financial Services Committee by Aug. 22, though they’d appreciate a response as soon as possible.

In the letter, the Committee asked for the number of special purpose broker-dealer applications, how many applications have been denied, and what risks were assessed prior to approving Prometheum. 

Additionally, politicians asked for documentation related to the application, and communications both within FINRA and with the SEC on the applications.

While the letter to the SEC did not include the same questions as McHenry posed to FINRA, it did request documents and communications related to the application.

“In fact, you have touted the Prometheum approval multiple times in public statements to support your position that digital asset firms can comply with the existing regulatory framework,” Committee members wrote to Gensler

During his testimony to the Committee earlier this year, Aaron Kaplan, CEO of Prometheum, stated that 20% of his company is owned by Shanghai Wanxiang Blockchain Inc and that “according to SEC filings, a representative of that entity, Feng Ziao, serves as a director in Prometheum.”

Prometheum and Wanxiang entered into a 2018 agreement to develop blockchain trading software, but the agreement was later terminated. 

“Prometheum’s former relationships with Wanxiang and its affiliates have been reviewed by the SEC, which closed its investigation, and CFIUS, which never opened up a formal investigation,” Prometheum said in an emailed statement to Blockworks.

“Prometheum purpose-built its technology with the goal to develop a market infrastructure for digital asset securities that is compliant with the federal securities laws. This technology will serve as a building block for a compliant and orderly digital asset securities marketplace that protects investors and serves their best interests.”

McHenry isn’t the only one concerned with the Prometheum approval. In July, Representative Ritchie Torres D-N.Y. asked the SEC to open an investigation into how the company — which “has not yet served a single customer” according to McHenry’s letters — was granted a license.

The Blockchain Association has also expressed its concern over the alleged “sweetheart” deal between Prometheum and the SEC.

Updated Tuesday, August 15 at 5:20 pm ET: Added statement from Prometheum


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2024

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Permissionless is a conference for founders, application developers, and users. Come meet the next generation of people building and using crypto.

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

4.png

Research

This months PPGC covered four main areas. Firstly, debriefing the progress and status of the mainnet implementation of the Ahmedabad hard fork. Secondly, a retrospective on the testnet phase of the Ahemdabad Hard Fork. Thirdly, an update on PIP-36 which involves replaying failed state syncs. Lastly, PIP-47 which pushes upgrades to the Polygon Protocol Council.

article-image

Institutions to test out the settlement of “digital assets and currencies” on a network that annually carries more than 5 billion financial messages

article-image

After Bitwise’s XRP ETF filing this week, one industry watcher notes: “Politics will determine whether this happens soon or in a few years”

article-image

Plus, a look back at some of the SEC’s biggest enforcement moves under Gurbir Grewal

article-image

The forward-looking financial system is being championed by several contributors to India’s UPI digital money system

article-image

Multiple teams are pursuing integration cross-chain and off-chain

article-image

An SEC spokesperson told Blockworks the Ripple judgment clashes with Supreme Court precedent and securities laws